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Spark Capital
RBL Bank (Buy)
Target: ₹316
CMP: ₹207.45
Post two tumultuous years (FY20/FY21) of rebalancing, de-bulking and de-risking, RBL Bank (RBK) is on its way to a phase marked by better consistency, sharp uptick in earnings and a steady & sustainable improvement in asset quality.
The bank’s barbell strategy – with the higher risk credit cards/microfinance portfolios at one end and the lower risk wholesale/business loan portfolios are now firmly embedded; importantly, while the wholesale clean-up is now behind us, we think the risk profile of the credit card/microfinance portfolios too have improved significantly since the onset of the pandemic. The C&IB portfolio has gone through a de-bulking & de-risking phase over the last 24 months, declining from 41 per cent of the loan book in September 2019 to 31 per cent now. Improvement in highly rated corporates is evident with proportion of ‘AA’ & above exposures increasing from 29 per cent in September 2018 to 48 per cent currently.
Shift in focus from the erstwhile ‘higher margin, higher ticket’ lending mindset to focus on building a self-funded book emphasising liabilities, salary accounts & transaction banking. Enhanced focus on forex, trade & cash management evident in CA proportion improving from 10.9 per cent in FY19 to 13.3 per cent in FY21. The bank has shifted away from unsecured lending in both wholesale and business banking portfolios.
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